Is oil joining the other commodities' collapse?

These are all signs that we are on the verge of a slowdown of epic proportions.

By Jim Cramer Jun 3, 2013 9:19AM

thestreet logoWe are seeing a total collapse in the commodities that have fed the emerging-market world for as long as any of us can remember. Every day we see signs of a wholesale crushing. Last week's crash in iron, the gut-wrenching attempts of copper to stay up here, the endless roll-backs of any rate hikes in steel, the trashing of aluminum: These are all signs that we are on the verge of a slowdown of epic proportions. This is particularly so in China, but also in Latin America, particularly for Brazil.

 

The inability of the Baltic Freight Dry Index to give us even a couple day's worth of rallying during this last month is mind-boggling. The index, a true measure of commodity uses, is a slow-motion train wreck. The rates for oil tankers can't rally even for a couple of weeks, no matter what the geopolitical tension.


In the midst of all of this chaos, one number stands out for its absurdity: the price of Brent crude, which is still hovering at $100 per barrel, as if there's no slowdown anywhere, nor any increase in production. The number mocks all of the trajectories of the other commodities, because it can't seem to dip even when China slows, when Europe slows, when Brazil slows, when Russia slows or when the U.S. finds more oil. It is pretty evident, moreover, that the U.S. oil production is coming back far more quickly than any of the talking heads say it is, and imports are at a 20-year low -- 36% of current consumption -- and going lower. 

 

Our domestic oil price -- the actual price, not the posted price -- is coming in at about $80. Somehow, though, it hasn't mattered one whit to the global price. The world is awash with oil that would have otherwise been sent here, and it doesn't seem to matter at all to the global price. Meanwhile Iraq adds to production by the day, Libya's back on line and Iran is still able to pump out plenty of oil despite the soft embargo. Yes, the Saudis could retreat from the market a tad if they wanted to support prices, but they haven't had to do so in any meaningful way because the price simply hasn't come down.


Why?

 

Image: Arrow Down © ImageSource, PictureQuestFirst, we know the price has been manipulated in the past. I've never found that market to be deep enough that I'd be able to dismiss the notion that it isn't being manipulated now.

 

Second, even as China is slowing, the car sales remain robust. They are out there securing supplies worldwide, moreover, as we know from the perceptively painful piece in today's New York Times, China takes half of Iraq's production.

 

Third, while the U.S. is economy is coming back, the economy still isn't coming back so quickly that it can support a higher oil price here than it can in the rest of the world. There has been endless chatter that, once this bottleneck has been solved or that bottleneck is eliminated, West Texas will trade with Brent. Despite that, though, it just isn't happening.

 

That brings me to the fulcrum of this debate. Oil started breaking down Friday, and West Texas came down to $91. Brent could be on the brink of decisively breaking $100. I think these declines could be the real deal, given the state of the world's economies. It is, of course, great news for the American consumer, and fabulous news for deflation, which would again make the idea of dramatically higher rates inconceivable -- although I still think they are moving up.

But it does make the oil stocks a sale. I think this group could join the rest of the commodity producers in going lower at this point, so it is time to underweight energy and do some selling in the oil-services stocks before it becomes obvious that the top might be in. I think that's a much more likely scenario than a rally by the rest of the commodity complex, given the free fall nature we saw just last week in every other commodity in existence.

 

cramer

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust.

 

 

 

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140Comments
Jun 3, 2013 10:29AM
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All this from the genius who told us to buy gold when it was at $1900 an ounce !
Jun 3, 2013 10:54AM
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I buy when Cramer say sell and sell when he says buy. I've beaten the market for two years following that tactic.
Jun 3, 2013 10:43AM
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What planet is Jim on? Oil still over $91. In 1973 it was $3.
Jun 3, 2013 10:35AM
Jun 3, 2013 11:33AM
Jun 3, 2013 10:29AM
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Remember the USS Liberty, June 8 1967 .......
Jun 3, 2013 9:34AM
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seems like several pundits are sing the "stocks are about to drop" song lately..... 
Jun 3, 2013 10:29AM
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The economy is on gigantic bubble getting ready to burst. 

Thanks President Obama for sacrificing our future for temporary gains.
Jun 3, 2013 10:42AM
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As Britain seriously contemplates it's inclusion into the European Union, I remind you that without the UK, the EU is Germany with it's hoard of gold and no other country with a sustaining economy. Every investment in it would default. A riff like that evaporates your stocks bonds and complex financial instruments like THAT. No safe haven in a massive cave-in... just a big hole where a false economy pumped by QE used to be.
Jun 3, 2013 10:53AM
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The Green liberal agenda wants $5 per gallon gas.  This is not a rumor and has been voiced by many including the POTUS.  $5 gas gives incentive to those alternative energy sources.  The Liberal Elites want to move beyond your grandfathers technology as well as his energy dependency.  They have this idea that what they think and want is much more important than any economic imperative that the average Joe wants or needs.  Why they are probably today sending the goons from the IRS to investigate all supporters of present day energy companies. You do understand it is the "NEW" way of conducting politics don't you. So perhaps Jim should at least give some creedence to the idea that his liberal pals in D.C. may say they are for lower energy prices when in reality they are doing their best to keep them as high as possible to keep their liberal agenda on track. 
Jun 3, 2013 12:14PM
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Wasn't Friday's column "Admit It: We're in a Bull Market" ??
Jun 3, 2013 10:49AM
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What you saw this morning was a typical sucker's rally...Hopefully not too many fell for it....Like we said earlier, manipulators in control once again today , they are doing and undoing at will...Be very cautious; hopefully this afternoon things will change...We will see...More later.
Jun 3, 2013 10:02AM
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Do not get too excited because we opened up, yes, we just were about 71 points up but gave much of it back early...Manipulators continuing what they started last week and there is very little anyone can do about that....To make things worse economic numbers this morning were awful; today the market looks like the economy, very crappy...More later.
Jun 3, 2013 10:41AM
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China saw another decrease in it's manufacturing index in May. Basically, they can't generate a homeland interest in the cheap knock-offs they produce, and every other nation in the world has been suppressed into stagnation from importing them. Business platforms here in America no longer have the infrastructure to make what they used to, so count on them collapsing as new supply costs more to make and ship. Anyone with stocks bonds and complex financial instruments would be SCREWED when that lack of output contaminates your false euphoric holdings. Are you getting this yet?
Jun 3, 2013 10:46AM
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It really doesn't matter how many degrees you have or what field they are in now... can you build your own business? Don't say so-- PROVE IT. Live off it. By the time next elections are on us... HONESTY will be our motivation and QUALITY will build us a new foundation to grow an economy with. Between now and then, the !@# hits the fan. You ready?

Jun 3, 2013 1:53PM
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According to my Fidelity charts, there are more BUY orders then Sells..hmmmm.

But you can't have one without the other...Usually..?

 

Fatty is waxing and washing his Hotwheels Collection...Go fatty go..

Jun 3, 2013 1:53PM
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Just as Treasury yields have remain artificially low due to the Feds continually manipulation, so have crude prices stayed artificially HIGH due to manipulation. Paper Future's contracts have been allowed to move prices regardless of actual supply. Folks will march on Washington about 501(c) that are clearly being used to swing elections. When it comes to the Trillions that Big Oil has gouged from them over the Decades, the Public is remarkably Silent.
Jun 3, 2013 2:05PM
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RegalMan has now become cc sunrise.  I see Fatty has two e-mails with messenger going today.  All these folks thinking they are acting soo smart, and all to impress whom?
Jun 3, 2013 1:03PM
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The old $4 and 5 dollar a gallon for fuel ploy, has been used in the past; By various Leaders...

Mainly as you say to get us off the oil teat and promote "green energy". it really has never helped, but this time it seems to be sticking a little better and "we are moving towards energy independence."

Albeit slowly and at some wayward cost to taxpayers...We are making inroads..

 

In the 70s and 80s it was driven towards Solar and more Natural gas to replace coal usage.

Today it is more Solar, Wind, Electric(battery) Vechicle usage and of course "fracking procedures"

to retrieve NG and Oil easier...

Seems to be working in some areas, but I also believe we should strive for cleaner Coal usage..

We have some of the largest known deposits in the World.....And it provides many jobs in places that need them....I think Wind and Solar will take care of itself this time, judging by the interest.

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